Barrick Gold Ends Chinese Talks to Sell African Unit

Barrick Gold Ends Chinese Talks to Sell African Unit

By Liezel Hill & Thomas Biesheuvel – Jan 9, 2013 12:47 AM GMT+0300

Barrick Gold Corp. (ABX), the biggest producer of the precious metal, ended talks over the sale of its 1.44 billion-pound ($2.32 billion) African unit to China National Gold Group Corp. without reaching an agreement.

Barrick still sees “a lot of value” in the assets held by its African Barrick Gold Plc (ABG) subsidiary, Toronto-based Barrick’s Chief Executive Officer Jamie Sokalsky said yesterday in a phone interview. Shares of African Barrick fell 21 percent in London yesterday.

African Barrick “does have some opportunities to enhance that value, and when we looked at that versus ultimately what China National Gold was talking about, it just wasn’t the right fit,” Sokalsky said. “We would have liked to have done this transaction, but it wasn’t about doing this at any cost.”

Sokalsky declined to comment on the specific issues that led to the end of the talks. Discussions had stalled because of differences over taxes and legacy issues, Chinese newspaper 21st Century Business Herald reported yesterday, citing CNG Chairman Sun Zhaoxue.

The deal would have been the largest gold-company takeover involving a Chinese company, according to data compiled by Bloomberg. Barrick said in August that CNG was in preliminary discussions about buying African Barrick Gold, which would have given the state-owned Chinese company four mines in Tanzania.

“This is a big asset, it’s a significant transaction for anyone, it’s a public company and ultimately over time multiple things came into the equation,” Sokalsky said. “It just didn’t make sense for both of us to transact, to ultimately complete a transaction.”

Rising Costs

African Barrick slumped to 352.1 pence at the close in London yesterday, the steepest decline since the shares were first sold in 2010. Barrick fell 1.3 percent to C$33.14 in Toronto.

Sokalsky, who replaced Aaron Regent as CEO in June, is reviewing Barrick’s assets in an effort to improve returns and cash flow as costs rise. The company has received approaches from companies interested in some of its other assets, he said yesterday.

“If there are opportunities to divest assets that are worth more to someone else than us, we will absolutely take a look at that,” Sokalsky said. Barrick doesn’t “have anything to talk about at the moment.”

Illegal Miners

While Barrick will consider new approaches for African Barrick if it gets them, the company won’t actively solicit third parties for a sale of the business, Sokalsky said.

Since being spun off by Barrick, African Barrick has struggled to meet production targets amid operational setbacks and disruption caused by illegal miners. Selling African Barrick would have lowered Barrick’s production costs, Brian Yu, an analyst at Citigroup Inc. in San Francisco, said in an Aug. 16 note.

In October, African Barrick raised its 2013 forecast for average costs to $900 to $950 per ounce of gold from a July projection of $790 to $860.

Barrick “will continue to look for ways to realize value from the block,” Numis Securities Ltd. in London said in a note to investors. “However, the news will come as a disappointment to some who saw it as a potential exit from this under- performing stock.”

Fewer Deals

Acquisitions in the gold industry have declined as slowing global growth tightened available credit. There were 175 completed deals worth $6.8 billion in 2012, the lowest in at least five years, according to data compiled by Bloomberg.

There are probably other companies interested in buying African Barrick, said David West, a Vancouver-based analyst at Salman Partners Inc. He didn’t name potential buyers.

“I wouldn’t be surprised to see another offshore entity maybe take a run at it,” West said in a telephone interview. “This stuff goes on all the time. I’m sure there are a lot more misses in terms of M&A activity than hits and this is just one of those misses.”

8 Responses

changes of investors in Tanzania will not help real Tanzanians. it s time now for we lower class country men and women to fight against these neocolonialists. let we fight now for our country for we is better to die if we want make future equal lives to our children and grand children. the time s now and do not wait tomorrow. together we can…………

Barrick Gold should return the assets to original owner, Watanzania, the gold mines belong to Tanzania, the company should discuss with Tanzania government to take over the mines. Tanzania can pay a certain percent of share to Barrick , and continue to work together training Tanzanian citizen to run the mines while it reduces its shares until total exit after Tanzania acquire the entire stake. no third party is required, as already Watanzania are furious with the way the country natural resources have been badly managed by the government. On the other side, Tanzania should float say 50% of shares to Watanzania who are interested to invest, until emerging of local largest share holder to take over. But this should not be through proxy arrangement with a secret foreign company. If Tanzania government is serious of transforming local citizen from poverty and empower them economically, then it has to step in, get involved in the business instead of sitting down and complaining of not getting sufficient revenue from mining industry.

Since Barrick Gold Corp. has shown a willingness to sell its 74% stake in African Barrick Gold (ABG) and entered into negotiations with the Chinese, the Tanzanian government should start negotiations with ABG to buy the shares. I believe Barrick were ready to sell for a little over $2 billion. If the government can borrow money to build a $1.2 billion gas pipeline from Mtwara to Dar es Salaam? Why can’t it borrow money to buy ABG? Gold prices will continue to go up and they will likely reach $2,000 per troy ounce over the next few years. Tanzania is also thinking of keeping gold reserves as a safe investment compared to volatile USD and euro currencies. So buying ABG would make a lot of sense for the Tanzanian government, which can later offload all or some of the shares to Tanzanians through the Dar es Salaam Stock Exchange (DSE). The biggest problem we have in government is that we lack visionary leaders capable of thinking big, so there its just wishful thinking to expect President Jakaya Kikwete’s CCM govt to make such a move.

…. the Mining Act of 2010 gives the government a go ahead to invest in strategic mining projects. It doesnt get more strategic than ABG, the biggest mining company in Tanzania with 4 gold producing mines. The Tanzanian government should make an offer for all of Barrick’s Gold’s 74% stake in ABG or even 35%. But do we have visionary, intelligent and daring leaders to make such tough decisions in Tanzania today?

That is why we have been telling the government to form a special commission to oversee the country natural resources. No ministry should have exclusive authority to manage oil and gas, mining etc. The commission should comprise attorney general, parliamentary account committeemen, representatives from ministry of (finance, labor, trade), regional representatives, experts from the fields. The commission should be tasked with policy establishment for investment and licensing of natural resources, re-investment of revenues to other national developments projects, ensuring Watanzania full participation.

Non of the comments have asked why a profit seeking company wants to off load it’s shares.

Instead of asking the government to buy maybe due diligence on the return on asset is what’s needed here. We should be approaching with caution as smart companies don’t just sell their best assets. I suspect operating costs are a problem (hence future profitability). We don’t want to buy a dud.

But you are not asking yourself why Chinese company want to buy over the business? Cooperate companies buying or selling business is their daily game in the name of restructuring. You are missing the point. Tanzania should inter the game, these are local investments not overseas. are you still worried of cultivating your own land? The minerals, the land, all belong to Tanzania. Has the government even thought of evaluating the investment in the interest of taking over? We can always sit and wait for foreigners to do things for us as long as we get some peanuts we are satisfied. With such attitude we should not complain of poverty, unemployment for our graduates etc, there is no business without risk taking.